Academic journal article Journal of Managerial Issues

Strategic Analysis for Resource Allocation Decisions in Health Care Organizations

Academic journal article Journal of Managerial Issues

Strategic Analysis for Resource Allocation Decisions in Health Care Organizations

Article excerpt

Recent trends in the health care industry suggest that fundamental change is inevitable in the near future. Businesses across America have become aggressive participants in cost containment initiatives (Bergthold, 1990). Additionally, governmental bodies continue to establish rate setting policies as evidenced by the more than thirty states which formed health care cost containment commissions (Eyster, 1984). At the federal level, the presidential administration has proposed a revolutionary restructuring of health care delivery and payment, and the Democratic and Republican caucuses of Congress have proposed rival plans for major change.

Calls for cost containment, legislated managed competition plans, and the emergence of purchaser alliances demanding increased financial accountability all suggest a greater need for sound business principles, including strategic planning and resource allocation models, within health care organizations. The current study briefly reviews the literature on strategic planning in health care administration and proposes an external/internal resource reallocation model using Importance-Performance-Awareness (IPA) mapping as a decision aid for hospital managers. The use of an IPA map can provide valuable information to the health care organization executive facing a turbulent and uncertain operating environment. After a review of the literature, the IPA methodology is described along with an example of IPA mapping within the health care industry using responses from 602 individuals in a Midwestern community. The article closes with a discussion of IPA's usefulness in assisting the strategic management and resource allocation tasks of managers in a broad array of industries outside health care. The application of IPA mapping in a hospital situation is meant to illustrate the potential usefulness of the methodology in helping managers efficiently utilize scarce resources and valuable organizational capabilities.


The most critical problem area facing hospital administrators today is associated with business and financial management, particularly the need to control expenses and conserve resources (Agho, 1992). However, issues labeled as "business and financial problems" were identified as among the most problematic areas in studies conducted in 1961 (Levey and McCarthy, 1962), 1963 (Dolson, 1965), and again in 1978 (Carper, 1982). It would appear that issues of management effectiveness and organizational performance have been considered problems for the last thirty years in health care administration. However, the "business and financial problems" facing health care administrators today are very different from the types of issues confronting health service organizations twenty or thirty years ago.

Currently, the health care industry is in the midst of a structural revolution that is reshaping the financing and delivery of health services, driven largely by a shift in market power to external constituencies such as government agencies and large businesses (Bergthold, 1990). Thus, the emphasis on business skills is now centered on external surveillance and internal efficiency assessment along with strategy formation and planning (Hudak et al., 1993). This trend is in contrast to the "business and financial problems" entailing revenue enhancement and domain expansion which were common in the 1960s and 1970s (Bergthold, 1990).

Even though external surveillance and internal assessment issues are becoming the predominant concern of health care administrators, the management tools utilized by these professionals have not kept pace. For instance, less than half of the hospitals currently using strategic planning conduct any form of environmental analysis, fewer than one in five do general consumer surveys, and only 27 percent include budget and resource allocation processes in their strategic planning practices (Zallocco and Joseph, 1991). …

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